DuPont: New Life for an Ancient Company

Back in 1802, when President Jefferson was trudging around the White House, DuPont (NYSE: DD) was born. It's since moved from an initial concentration in gunpowder manufacturing into the vast world of chemicals, and now to its latest manifestation in agricultural and food-related products.

The most recent transmogrification has clearly gained momentum since Ellen Kuhlman assumed its CEO mantel five years ago. It's hard to see that directional change doing anything but intensifying.

In that context, it's probably not unrealistic to assume that, in another five years, the company will be devoting virtually all of its efforts creating the bio-engineered seeds, pesticides, and other products that will play key roles in feeding the 2 million additional folks who are expected to join us on Planet Earth in the next several decades. In fact, DuPont is already in a league with Monsanto (NYSE: MON) , which had a head start in reinventing itself as a largely agriculture company, and now does little else.

For that very reason, it's been especially edifying for me to peruse the transcript of a presentation by Jim Borel, a DuPont executive vice president, with responsibility for the company's agricultural and nutrition businesses. At mid-week, Borel addressed analysts at the RBC Capital Markets Global Industrials Conference in Las Vegas.

The action never ceasesBefore I pass along some of Borel's specific comments about DuPont's agriculture and nutrition segments, let's review the bidding on some of the recent structural changes that have been completed, or are pending, at DuPont:

In 2011, DuPont paid $6.3 billion, including debt assumptions, for Danisco, a global enzyme and specialty food ingredients company based in Denmark.

Last year, DuPont sold its car paint unit to the Carlyle Group (NASDAQ: CG) , a private equity firm, for $5 billion.

Also in 2012, DuPont acquired the remaining 28% it didn't already own in Solae, a St. Louis-based developer of soy-based ingredients.

Last month, following an arduous three-year process, the company completed a transaction that gave it 80% of South Africa's Pannar Seed. It thereby has gained an entree to effect much-needed agricultural improvements and efficiencies on that giant continent.

With its Performance Chemicals segment suffering major declines in both revenues and operating income during the most recent quarter, it's a safe bet that the laggard operation will belong to someone else within the reasonably near term. A sale of the unit likely would fetch about $10 billion.

Real indications of progressWith those significant events as a backdrop, let's now look at some of Borel's key comments about DuPont's progress in the agricultural and nutrition segments:

Between 2010 and 2012, the ag businesses outstripped its peers, growing at an annual 15% rate.

The Dansco acquisition has become accretive to the company far faster than was expected, having added about $0.25 to 2012 EPS.

In crop protection, the company is already nearing $900 million in revenues from "our blockbuster insect control products called Rynaxypyr." (There will be a spelling test.) Beyond that, it has recently added two other unpronounceable, but effective, disease-control products to its repertoire.

Borel expects DuPont's contribution to the $40-billion nutrition and health-care market to maintain at least 6% annual growth over time.

The company is working toward the rollout of DP 4114, a lethal enemy of above- and below-ground pests, along with Optimum GLY canola, a weed eradication agent.

Also nearing its introduction is the company's Plenish high oleic soybean. The product is devoid of trans fats, a boon to food companies that now must label the volume of the trans fats in their products.

Bottom lineFor the past several years, I've been keeping an eye on agriculture-related companies, given the almost-certain global expansion of their markets. Monsanto is, of course, a leader in the group, and Canada's Agrium (NYSE: AGU) , which plies its trade largely in crop protection products and soil nutrients, is well worth monitoring.

However, as an avowed management freak, I continue to find the decisiveness and steady progress at DuPont tough to top.

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Remarkably during the presentation in Las Vegas this week just past, neither Jim Borel nor RBC mentions the huge drain on cash looming in the near future from settling tens of thousands of claims in federal and state courts generated by DuPont AG's failed dandelion lawn treatment turned serial tree-killer, DuPont Imprelis. We believe conservatively the tab for the litigation claims will total $2 billion or MORE. If these charges are not factored in under some non-GAAP accounting rules, margins are grossly and artificially overstated, if not Pollyannaish.

Unfortunately for DD shareholders, DuPont Chieftess Ellen Kullman and Jim Borel as DuPont AG overlord have commanded and presided over the most costly new product failure and ensuing environmental disaster in 21st century corporate America. We think that is worth a brief mention in any balanced discussion at RBC for the benefit of investors and analysts. ...funfun..

We respectfully disagree with Mr. Smith, the author of this well-composed article on DuPont.

If the big Monsanto patent infringement case in the U. S. District Court of Missouri showed us anything last year, it was how far behind DuPont had fallen from top-running Monsanto. Furthermore, the fraud sanctions imposed by Judge Richard Wright and disclosed in November of 2012 showed an unethical DuPont Senior Management and their PR cosmeticians will go to extreme lengths to cover up and dissimulate the gap between Monsanto and DuPont.

Judge Wright ruled DuPont not only engaged in FRAUD ON THE COURT, but to have systematically engaged in defrauding investors and the public about its seed business and operations! DuPont Management's first major attempt to develop and commericialise a first-generation genetically modified seed trait to compete with superior-performing Monsanto ended in failure. That was DuPont OptimumGAP.

The commercial reality is most of DuPont Pioneer's better seeds are mortgaged to Monsanto, embedded with Monsanto's superior traits for which DuPont pays Monsanto hundreds of $millions in license fees each year.

No, DuPont is not in the same league as the world leader in seed biotechnology and largest in seeds, Monsanto. Far from it.

Merely, of course, the perspective of one individual retail investor, long MON, long and short DD...funfun..

Many investors will recall all the hoopla and hype not too long ago about Danisco. Ms. Ellen Kullman, DuPont Chieftess and her executive TEAM touted this acquisition as helping lead DuPont to a promising future as a "fuel company". Danisco was promoted as having some sort of magic bug which would eat corn cobs and excrete commercially profitable quantities of DuPont corn cob "gasoline". What happened to this fantastic fuel of the future?

Ms. Kullman proceeds to bid against herself and gobbles up Dansico, the world's second-place player in food additives and enzymes, for circa $7 billion. Danisco was soon sliced and diced and dissolved into various fiefdoms of the DuPont conglomerate bureaucracy. We have learned much of the better talent at Danisco pre-purchase has left the building.

Let's take a look at DuPont's return on its big $7 billion investment. In this excellent article on DuPont, David Smith discloses Danisco earned only a quarter, $0.25 EPS for DuPont in 2012. On 933 million shares outstanding, that translates to a total of $233 million. Divided by $7 billion gives a yield of 3.3%. Nothing to write home about.

How low is the bar set at DuPont that a 3.3% return on investment is seemingly cheered by DuPont Management and their PR pros as high achievement?